Case Law Details
Brief of the Case
Karnataka High Court held In the case of M/s. Safina Hotels Private Limited vs. CIT & DCIT that it is clear that the notice is issued proposing to levy penalty under Section 271(1) (b) whereas the order is passed by the Assessing Officer under Section 271(1) (c), which clearly indicates that there was no application of mind by the Assessing Officer while issuing the notice under Section 274. Further, there was no occasion for the Assessing Officer to come to a conclusion that there was concealment of the income by the assessee or the assessee has filed inaccurate particulars. All the particulars were available in the return of income. Thus, the Assessing Officer had no jurisdiction to pass the penalty order under Section 271(1) (c) without issuing a proper notice required under law and moreover, when the particulars are disclosed in the return of income.
Facts of the Case
The assessee filed the return of income for the assessment year 2001-02 disclosing income only under the head ‘income from business’ amounting to Rs.1,64,74,416/-. He had claimed Rs.28,40,409/- as loss on ‘sale of investment’ under the financial charges as revenue expenditure. The Assessing Officer held the above income to be in the nature of capital expenditure and disallowed the claim. Accordingly, assessments were concluded. The Assessing Officer also separately initiated penalty proceedings under Section 271(1) (c). After considering the objections, the Assessing Officer passed an order under Section 271(1) (c), levying penalty as proposed.
Contention of the Assessee
The ld counsel of the Assessee contended that the Assessing Officer though issued notice under Section 271(1)(b) proceeded to pass the order under Section 271(1)(c). Further, it is submitted that Section 271(1B) of the Act contemplates recording of satisfaction for levy of penalty under Section 271(1)(c) by the Assessing Officer. No iota of satisfaction is recorded by the Assessing Officer in the assessment order to impose penalty. As such, the mandatory requirement of Section 271(1) (c) is not complied by the Assessing Officer, on this ground alone; the penalty levied under Section 271(1) (c) by the Assessing Officer requires to be set-aside. In support of his contention, he relied on the judgment of Commissioner Of Income Tax and another Vs Manjunatha Cotton and Ginning Factory and Ors reported in ((2013) 350 ITR 565.
It was further submitted that even on merits, the Assessing Officer had no reason to levy penalty under Section 271(1) (c). According to him, the assessee has not concealed the particulars of his income or furnished inaccurate particulars of such income. It was made clear in the return submitted by the assessee that the assessee has claimed an amount of Rs.28,40,409/- as loss on investment under financial expenses. The Assessing Officer based on the declaration made in the return, held that expenditure claimed by the assessee as revenue is capital in nature. In such situation, the Assessing Officer levying penalty under Section 271(1) (c) is contrary to the tenor of the provision which attracts only in cases of concealing of income or filing of inaccurate particulars.
Contention of the Revenue
The ld counsel of the revenue submitted that the Assessing Officer in the notice dated 30.08.2006 issued under Section 274 read with Section 271 has deleted only a portion of the contents of para relating to Section 271(1)(c), i.e., the deletion is made only with respect to, “have concealed the particulars of your income”, the remaining portion “furnished inaccurate particulars of such income”, remains intact. This clearly establishes the basis for the Assessing Officer to initiate proceedings under Section 271(1) (c). Thus, he submits that there is no variance between the contents of the notice issued and the orders passed.
He further submitted that the assessee had wrongly claimed the capital expenditure as the revenue expenditure under the head ‘financial expenses’ in the return of income filed, Assessing Officer has disallowed the deduction towards the capital expenditure. In such circumstances, levying of penalty under Section 271(1) (c) of the Act is mandatory and authorities have no discretionary power to waive off the penalty, even if there is any technical error in issuing the notice, it cannot be turned down only on the technicalities.
Held by CIT (A)
CIT (A) allowed the appeal of the assessee and deleted the addition made by AO.
Held by ITAT
ITAT allowed the appeal of the revenue and restore the order of AO.
Held by High Court
High Court held that the notice issued by the AO clearly discloses that the Assessing Officer has deleted the paragraph relating to “have concealed the particulars of your income or furnished inaccurate particulars of such income” and has put a right mark on the printed form relating to the para “failure to comply with a notice under Section 22(4)/23(2) or under Section 142(1)/143(2) which corresponds to Section 271(1) (b). Thus, it is clear that the notice is issued proposing to levy penalty under Section 271(1) (b) whereas the order is passed by the Assessing Officer under Section 271(1) (c) which clearly indicates that there was no application of mind by the Assessing Officer while issuing the notice under Section 274.
It is imperative from the order under Section 271(1) (c) that the Assessing Officer noticed that the assessee has declared the revenue expenditure in the financial expenses which was capital in nature. This is based on the verification of details of the return of income filed by the assessee. If so, there was no occasion for the Assessing Officer to come to a conclusion that there was concealment of the income by the assessee or the assessee has filed inaccurate particulars. The very particulars were available in the return of income. Thus, it clearly indicates that the Assessing Officer had no jurisdiction to pass the penalty order under Section 271(1) (c) without issuing a proper notice required under law and moreover, when the particulars are disclosed in the return of income. The Judgment of Manjunath Cotton and Ginning’s case ((2013) 350 ITR 565 is squarely applicable to the facts of the present case wherein, it is held that the levy of penalty is not automatic concomitant of the assessment and the standard proforma without speaking of the relevant clauses lead to an inference to non-application of mind.
Further as regards Section 271(1B), it clearly indicates that the assessment order should contain a direction for initiation of proceedings. Merely saying that the penalty proceedings have been initiated would not satisfy the requirement; a direction to initiate proceeding shall be clear and not be ambiguous. In the light of the said judgment of the Co-ordinate Bench, we are of the considered view that the Assessing Officer has not applied his mind at the time of issuing notice under Section 274 R/W Section 271(1) (b). Accordingly, we set aside the order of the ITAT and restore the order passed by the CIT (A).
Accordingly appeal of the assessee allowed.
